The data on sales growth for Australian retailers over the latest financial year underscores what I have long believed about Australian supermarkets-- that their dependence on shopping centre locations has tied their hands and prevented them from incorporating product and service lines that could have been huge growth vehicles for them.

Take food service for example. Many of the best overseas supermarkets occupy their own sites and have footprints well in excess of the standard 4,000 sq.m or so. With this footprint they can not only offer a full line of standard supermarket goods, but can also incorporate high margin casual dining and prepared food experiences.

Woolworths and Coles are unable to do this within their customary supermarket boxes.

The cafe/restaurant sector in Australia achieved sales growth of 11.8% in the year to June 30, according to the Australian Bureau of Statistics. Meanwhile, supermarkets and other grocery stores achieved growth of 4.4%. This is a respectable outcome for the supermarkets considering the decline in food inflation that depressed sales, but it could have been better.

This is not to say, of course, that all supermarkets should be large format. An equal and opposite trend has occurred in infill locations where some excellent small formats are emerging with heavily edited assortments.

Still, full-line supermarkets in Australia are missing the boat, not just on food service but pharmacy and other lines. Larger stores may also permit wider aisles and a more comfortable shopping experience by the way, but that is not the kind of competitive advantage that retailers want to embrace in this time of fixation on sales density.